For sale

Land reform gathers pace?

For sale

How much for the donkey?

Veterans of the Long March would roll over in their graves were they to click onto “” today.

Tudinet is a new website operating an online marketplace for the “land-use rights” of peasant farmers’ small plots.

Not what most of the Long Marchers ever had in mind. After all, China’s Communist Party came to power promising to get rid of landlords altogether.

But a new set of land reforms is bringing capitalism back to the countryside in a different garb. Some say that the new laws will transform China’s economy. Others worry that the legislation could make rural poverty worse.

The law, which allows farmers to “transfer” 30-year land use rights over their land, was approved by the Party’s Central Committee in late 2008, and passed by the National People’s Congress in March this year. Rural collectives still technically own the land, but the new measures come close to privatisation.

Rural-urban inequality is a serious issue in China. Over the past three decades governmental policies are generally accepted to have benefited the cities and industrial areas at the expense of the countryside.

As a result, though rural residents still make up the majority of China’s population, agriculture barely accounts for a tenth of GDP.

“To maintain stable and relatively fast development of the rural economy is not only an economic issue, but also a social issue,” worries outgoing Minister of Agriculture Sun Zhengcai.

And one reason for the new law is to help farmers get a fair financial return for their land. When land is sold, local officials can often pocket much of the proceeds. An example: Zidong village Party Secretary Liu Zirong, who went on trial earlier this month for misappropriating $3.5 million. The money was meant to compensate villagers whose land was sold, according to a Xinhua report. It’s just one of nearly 5,000 corruption cases brought against village cadres in the past year.

“The government should compensate peasants whose land is taken, and land premiums should be used primarily for rural development,” confirms Premier Wen Jiabao.

But it’s a promise more often honoured in the breach. Land sales revenues have also become much more important to local government budgets after agricultural taxes were abolished in 2006. “Many local governments get almost half of their revenue from land trading,” explains Peking University Law Professor Shen Kui, “so to cut that profit source could be very hard.”

Not surprisingly, instances in which land sales have provoked rural unrest are another major concern. The latest official statistics put the number of mass protests at over 87,000 in 2005. In the absence of more recent data NGOs estimate the current figure is much higher.

So can the new system really empower farmers, when local bureaucrats are the ones implementing policy?

A recent survey found that less than 60% of peasants had proper documentation for their landholdings. And Dr John Lee of the Sydney-based Centre for Independent Studies worries that the potential for abuse remains: “New reforms to transform leases into tradable assets will allow many local officials to formally entrench and realise their illegal gains.”

Currently, most Chinese farmers operate on small plots, averaging just half a hectare. But the new reforms are intended to allow for larger farms, which will then adopt more advanced production methods.

The government wants the farmers who sell their plots to migrate to the cities, where average incomes are three times higher.

This “urbanisation” policy is aimed at growing the economy by increasing domestic consumption, and easing some of China’s dependence on exports. “To boost domestic demand is a long-term strategic policy for China’s economic growth,” Premier Wen told last September’s World Economic Forum.

But not everyone agrees with that hypothesis. “In almost every big developing country that has adopted Western-style land privatisation, land has been largely expropriated and slums have appeared, and this has provoked social turmoil,” blogged Renmin University’s Rural Development Professor Wen Tiejun.

Many of China’s industrial sectors also have overcapacity problems, and its factories already employ more than 150 million rural migrants.

At the height of the recession early this year, it’s estimated that between 20 and 30 million rural migrants lost their jobs and had to return to the countryside.

So if millions more erstwhile farmers “sell up” and migrate to the cities, there’s a danger they won’t all find employment. And even if they do – and then lose their jobs – they won’t have a livelihood (however harsh it might be) to return to.

There are also ecological concerns with the new policy.

Experts think that large-scale agriculture could lead to a deterioration in the quality of the country’s soil and water resources. Chemical fertiliser, a cornerstone of industrial farming, is already one of the biggest pollutants of freshwater in China.

“In the long term, the key factor in food production – soil fertility – is not improved but diminished [by chemical fertilisers]”, warns Chinese Academy of Science Professor Jiang Gaoming. He argues further that the government needs to adopt policies that make small-scale farming profitable and more productive.

The country’s leadership is also wary about the risks its reforms might bring. “The depth of reform and the speed of development must not go beyond society’s capacity to bear,” President Hu Jintao has warned. “Without stability nothing can be done, even achievements already made can be lost.”

As the land reform process accelerates, it is likely to become one of the key social and economic themes in China in 2010.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.